Long the workhorse of the financial mainstream, the checking account has undergone a radical evolution in recent months. Banks are shifting to the business model embraced by airlines, unbundling a product and adding fees on an a la carte basis for services that used to be included.
Even worse, customers might not know about all the fees they could be charged until after the fact. A new report from the Pew Charitable Trusts finds that the average length of checking account disclosures is 111 pages, and there is a lack of transparency when it comes to fee information. Watchdog group U.S. PIRG reached a similar conclusion; in its research, only a slim majority of banks provided correct fee information. “In total, 23 percent did not ever give us the fee schedule. The other 20 percent gave us wrong information,” says Ed Mierzwinski, consumer program director.
The most visible of these new charges is a monthly maintenance fee for checking accounts, which many of the biggest national and regional banks have implemented. A growing number of banks now charge for hard copies of items like paper statements or check images, and many have rolled back perks like debit card rewards and reimbursements for using a non-network ATM. For some bare-bones accounts, there’s even a monthly fee that kicks in if the customer wants to speak to a teller.
[time-link title=”(Read about how Bank of America now texts customers overdraft warnings)” url=http://techland.time.com/2011/05/12/bank-of-america-to-text-customers-overdraft-warnings/]
There are two big reasons behind banks’ newfound zeal for nickel-and-diming. The first has to do with overdraft charges. Last August, the Federal Reserve prohibited banks from automatically enrolling customers in overdraft protection programs. Previously, banks would process debit transactions even if the purchase was greater than the account balance, then hit customers with a fee that was often as high as $35. This led to what personal finance experts tended to dub the “$38 cup of coffee,” since overdrawing by even a few dollars would trigger the fee. If a consumer didn’t realize they were overdrawn, they could easily rack up hundreds of dollars in fees.
“The thing that is really so frustrating is banks manipulate the order of transactions and process them in a way that better insures they’ll trigger an overdraft fee,” says Pamela Banks, senior policy counsel of financial services for Consumers Union. Say you have $100 in your account, and you make a $100 purchase and three $5 purchases. If the three small charges are processed first, you’ll only be on the hook for one fee. But if the $100 transaction goes first, you’ll pay three overdraft fees, one for each of the $5 purchases. Banks overwhelmingly opt for the latter version.
Those charges add up, not just for the customers, but for the banks as well. In 2009, financial institutions collectively raked in $37.1 billion from overdraft charges, according to market research firm Moebs $ervices. The Federal Reserve took aim at that income stream when they ruled that banks had to make overdraft an opt-in service; in other words, you’d have to specifically say you wanted your bank to process a purchase that would put you in the red instead of having them assume you wanted those transactions to go through unless you specified otherwise.
The other reason banks have gotten fee-happy has to do with a battle that’s taking place now between the banking and retail industries. It concerns interchange fees, which is the amount the merchant pays and the bank receives every time you swipe your debit card at a cash register. Banks currently get about 44 cents per debit transaction; the National Retail Federation wants to see that lowered to 12 cents per transaction, the amount proposed by the Federal Reserve last year.
Armies of lobbyists employed by the respective industries are fighting this out in Washington, but banks are already laying the groundwork for making up that potential lost revenue. Banks are also trying to sway public opinion in their favor by engaging in a few scare tactics like charging $5 for an ATM withdrawal or threatening to cap debit card purchases at $50. The idea is that we’re supposed to believe banks will be forced to take these kinds of draconian measures if the retail industry gets its way. (In reality, experts say, these doomsday scenarios won’t come to pass.)
Between the fee creep and the political grandstanding, you’re justified if you’re a little ticked off — or really fed up — with your bank right now. But there are a few steps you can take to keep your sanity and your money.
First of all, free checking does still exist, generally at smaller banks and credit unions. “We still see free checking accounts out there,” says Linda Sherry, director of national priorities for advocacy group Consumer Action. “So far, their demise has been greatly exaggerated.” Yes, changing banks is a big step and it can be a colossal pain if you have a lot of bills set up to pay automatically, but think of it as your nuclear option. At the end of the day, you can always take your business elsewhere.
[time-link title=”(Read Swampland’s article about the political battle between banks and retailers over swipe fees)” url=http://swampland.time.com/2011/04/28/clash-of-the-titans-banks-vs-retailers-on-swipe-fees/]
If you want to stick with your current bank, you can generally have the monthly maintenance fee waived by keeping a minimum balance in the account or having a certain dollar amount direct deposited each month. Keep an eye on your mail, though; banks switch up these amounts all the time.
If you live paycheck to paycheck, there are cheaper options than overdraft protection. At most big banks, you can link your checking account to a savings account or line of credit; if a purchase is going to put you in the red, the bank will pull from that secondary source for the funds. There’s generally a $5 or $10 transfer fee each time you do this, so you might want to consider setting up email or text alerts to let you know when your balance is heading toward zero. The alerts will also give you a heads-up if someone’s dipping into your account fraudulently; the down side of this transfer tool is that if a thief gets their hands on your account information, they can run through not only the money in your checking account, but the savings or line of credit cushion, as well.
Also, be aware that if you opt for overdraft protection, it won’t keep you from bouncing a check and it doesn’t apply to payments that are withdrawn from your account automatically. According to Kathleen Day, spokeswoman for the Center for Responsible Lending, 64 percent of the people who opt in for overdraft protection now do so because they erroneously believe overdrawn checks are covered.
You can avoid fees for hard copies of your statements, check images and the like by going paperless. Download and save PDFs of your monthly “paperwork,” and save them in a secure folder on your computer. (To be extra-safe, copy the info to an external hard drive in case your machine has a meltdown.) You can dodge non-network ATM fees by getting cash back when making a purchase; while some retailers charge for this, many don’t. Finally, read your statements carefully. Consumer advocates point out that many fees are poorly disclosed; if a new fee appears on your statement, you have a shot at getting it reversed if you call your bank promptly.